DAILY FX OUTLOOK. Wednesday, January 17, FX Themes/Strategy/Trading Ideas

Transcription

1 DAILY FX OUTLOOK Wednesday, January 17, 218 FX Themes/Strategy/Trading Ideas An attempted rally by the USD proved short lived on Tuesday with the majors recouping intra-day losses to end essentially unchanged on the day. The EUR softened intra-day (with bunds yields lower on the day) as doubts emerged over the ECB s hawkishness (see below). A wire report cited sources as saying that the ECB was not likely to materially alter its forward guidance at next week s policy meeting. ECB s Weidmann said market expectations for a mid-219 rate hike are largely in line with the Bank s current guidance (current market pricing put odds on a December rate hike). Note that Weidmann however noted that an end to the QE program in 218 would be considered appropriate from today s perspective. ECB s Villeroy says EUR is a source of uncertainty and must be monitored. Today, the calendar includes the Bank of Canada rate decision (15 GMT), where a 25bps rate hike to 1.25% is heavily expected. Note very little wriggle room is expected for the CAD, with any disappointment from the BOC likely to undermine the loonie in the short term. Treasury Research & Strategy Emmanuel Ng ngcyemmanuel@ocbc.com Central bank appearances include the Fed s Evans and Kaplan (2 GMT) as well as Mester (213 GMT), while ECB appearances include Villeroy again (83 GMT), and Nowotny (855 GMT). The BOE s Saunders is scheduled for 1145 GMT, Elsewhere, pending the passage of a continuing resolution (temporary funding bill), the prospect of a government shutdown at the end of the week may keep risk appetite levels slightly guarded (and the USD likely vulnerable). Overall, inherent USD vulnerability may remain a staple intra-day (DXY making a break for 9. early Asia Wednesday) and we may be heading into an inflection point of sorts with Fed/ECB appearances today, not to mention the BOC rate decision. If the broad dollar continues to remain under the weather amid positive risk appetite levels (and consequent inflows into EM/Asia), we believe that the USD-SGD may have further downside potential from here. In addition, the SGD NEER is also not currently deemed excessively stretched to the upside. From a spot ref of on Tuesday, we initiate a tactical short USD-SGD idea and target 1.311, leaving a stop at

2 3/3/214 3/7/214 3/11/214 3/3/215 3/7/215 3/11/215 3/3/216 3/7/216 3/11/216 3/3/217 3/7/217 3/11/217 Asian FX Negative US equities may be eclipsed by a still positive EM equity performance on Tuesday and with the dollar complex still wobbly, the ACI (Asian Currency Index) may continue to slip. Note that on a medium term horizon, our structural model for the ACI remains decidedly bearish. Meanwhile, with EM risk premiums continuing to compress, the FXSI (FX Sentiment Index) remained in Risk-On territory despite consolidating slightly higher overnight. Net portfolio inflows within Asia meanwhile may be taking a breather somewhat with investors likely to be more selective going ahead. South Korea and Taiwan are still clocking net equity inflows although net inflows for India remain weak (leaving the INR and govies continually vulnerable). The THB meanwhile remains underpinned by net bond inflows while for Indonesia, the latest numbers depict some pause but the recent strong bond inflows may continue to impart implicit support for the IDR (and govies). SGD NEER: December NODX readings came in below expectations but endemic USD weakness is translating to a firmer SGD NEER at +.8% above parity (1.3298). NEER-implied USD-SGD thresholds are softer on the day and the NEER is to be supported within +.7% (1.326) and +.9% (1.3193) Asian Currency Index SGD NEER % deviation USD-SGD Current % Parity % CFETS RMB Index: Today, the USD-CNY mid-point fell (less than we expected) to from yesterday. This saw the CFETS RMB Index falling slightly to from on Tuesday. Treasury & Strategy Research 2

3 CFETS NEER vs. USD-CNY mid-point /1/1 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 1/1/17 1/1/18 CFETS RMB Index USD-CNY Fix, Bloomberg Treasury & Strategy Research 3

4 18-18-Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov Mar May Sep Nov-17 G EUR-USD EUR-USD Apart from potential ECB-speak today, German political developments remain somewhat in a flux (prospects for a Grand Coalition ), while investors will also remain on the lookout for EZ December CPI numbers today (1 GMT). Short term implied valuations meanwhile have consolidated lower slightly with a preference to collect into dips towards 1.22 at this juncture. Actual Fitted USD-JPY USD-JPY Despite comments from FM Aso, USD-JPY, short term implied valuations for the pair continue to drip lower. As noted previously, investors may have to await the next catalyst for a sustained break below 11. (towards 19.55) Actual Fitted AUD-USD AUD-USD Ahead of the December labor market numbers tomorrow, short term implied valuations have continued to creep higher. Nonetheless, the pair remains north of its implied confidence intervals at this juncture with the junction at.8 still in play..68 Actual Fitted GBP-USD GBP-USD UK December CPI/PPI readings came in mixed on Tuesday and investors may have to look to BOE rhetoric today (apart from EUR cues) for further directionality. In the interim, short term implied valuations have stalled and the pair may continue to contemplate a break of 1.38 despite a still constructive outlook Actual Fitted Treasury & Strategy Research 4

5 18-18-Mar May Sep Nov Mar May Sep Nov USD-CAD USD-CAD The USD-CAD may continue to hover just above 1.24 ahead of the BOC tonight. A hawkish hike would significantly boost the loonie while a neutral hold may incite an abrupt jump towards the 1-day MA (1.2588). Short term implied valuations for the pair remain consolidative in the interim. Actual Fitted Treasury & Strategy Research 5

6 USD-Asia VS. Net Capital Flows South Korea Taiwan NFB: Bond & Eq 2D RS USD-KRW NFB: 2d RS USD-TWD India Indonesia NFB: Bond & Eq RS 2D USD-INR Bond & Equity: 2D RS USD-IDR Philippines Thailand NFB: RS2 USD-PHP Net bond & equity WTD RS2 USD-THB Malaysia Equity 2D RS USD-MYR Treasury & Strategy Research 6

7 29-Sep-5 29-Mar-6 29-Sep-6 29-Mar-7 29-Sep-7 29-Mar-8 29-Sep-8 29-Mar-9 29-Sep-9 29-Mar-1 29-Sep-1 29-Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep-17 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Aug-16 Dec-16 Aug-17 Dec-17 ACI VS. Net Capital Flows z-score 4wk MA Stronger Asia FX 1m% Weaker Asia FX Total Net Flows (2D RS) ACI (RHS) FX Sentiment Index RISK OFF RISK ON -2. 1M Correlation Matrix Security DXY USGG1 CNY SPX MSELCA CRY JPY CL1 VIX ITRXEX CNH EUR DXY SGD CHF CNH CNY MYR THB IDR CAD KRW TWD JPY CCN12M INR PHP USGG NZD AUD GBP EUR Source: Bloomberg Treasury & Strategy Research 7

8 NOK HUF SEK PLN EUR AUD COP NZD ZAR RUB CAD MYR GBP CNY CHF CLP THB KRW BRL SGD IDR JPY MXN TWD TRY INR PHP ARS Immediate technical support and resistance levels S2 S1 Current R1 R2 EUR-USD GBP-USD AUD-USD NZD-USD USD-CAD USD-JPY USD-SGD EUR-SGD JPY-SGD GBP-SGD AUD-SGD Gold Silver Crude FX performance: 1-month change agst USD 8. % Source: Bloomberg G1 FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR AUD NZD EUR GBP JPY CAD USD SGD MYR Treasury & Strategy Research 8

9 Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR Treasury & Strategy Research 9

10 FX Trade Ideas Inception B/S Currency Spot Target Stop/Trailing Stop Rationale TACTICAL 1 27-Nov-17 B GBP-USD Investors may imputebrexit talks in December. Prevailing USD weakness B EUR-USD "Hawkish" ECB expectations, positive German poloitical news flow S USD-SGD Heay dollar, positive risk appetite, SGD NEER not excessively strong STRUCTURAL RECENTLY CLOSED TRADE IDEAS Inception Close B/S Currency Spot Close Rationale P/L (%)* 1 7-Nov Bullish 2M 1X2 USD-JPY Call Spread Rate differential complex Spot ref: ; Strikes: , ; supportive of the USD, BOJ static Exp: 4/1/18; Cost:.9% -.9** 2 21-Nov S USD-SGD Little contagion in geopolitical risks, sanguine portfolio inflow environment,usd fragility 3 9-May B GBP-USD USD skepticism, UK snap elections, positioning overhang, hawkish BOE? **of notional Treasury & Strategy Research 1

11 This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in this publication and together with their respective directors and officers, may have or take positions in the securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or their clients, and may also perform or seek to perform broking and other investment or securities-related services for the corporations whose securities are mentioned in this publication as well as other parties generally. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, communicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, Relevant Materials ) to any person or entity (including, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a Relevant Entity ) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Relevant Materials to any Relevant Entity that is subject to the Markets in Financial Instruments Directive (214/65/EU) ( MiFID ) and the EU s Markets in Financial Instruments Regulation (6/214) ( MiFIR ) (together referred to as MiFID II ), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (including, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193232W Treasury & Strategy Research 11